Sale ends machine flap

Smartmatic -- the South Florida-based voting-machine company that was under investigation for possible links to the Venezuelan government -- will sell the U.S. subsidiary that provides electronic machines in Florida and other states.A federal investigation into possible secret Venezuelan government involvement in a South Florida-based electronic voting machine company has been closed after Smartmatic announced on Thursday that it will sell the subsidiary that sparked the probe.

A Treasury-led panel began the inquiry earlier this year because of concerns that Smartmatic, which owns Sequoia Voting Systems Co., could pose a threat to U.S. national security by giving the left-wing government of Venezuelan President Hugo Chávez a way to influence elections.

Sequoia, one of the nation's leading suppliers of touch-screen voting machines, provides machines to the nation's capital and dozens of counties in 16 states, including Florida counties such as Hillsborough, Palm Beach, Indian River, and Pinellas.

Smartmatic representatives, who say the company voluntarily submitted to the probe, said the sale of Sequoia and the end of the investigation will allow both companies to grow without a cloud of suspicion hanging over their operations.''We think Sequoia is a great company with the best product out there, and it is going to become the number one voting vendor in the U.S.,'' said Smartmatic CEO Antonio Mugica. ``It would be [a mistake] for it not to realize its full potential because of this distraction about ownership.''

ALLEGATION

Even with the sale of Sequoia, Smartmatic's dealings with the federal government may not be over.

Earlier this month, the company contacted the Justice Department to deny allegations, first reported in El Nuevo Herald, that its owners paid a bribe to obtain the contract to supply voting machines to the Venezuelan government. Company representatives also disputed allegations that it failed to pay U.S. income taxes.

The company, with offices in Boca Raton and incorporated in Delaware, has not been notified that it is the target of a criminal investigation, said Jeff Bialos, a Washington, D.C. attorney for Smartmatic.

''The company hasn't been subpoenaed and all the underlying activity was associated with legal advice at the time,'' he said. ``The company believes there is no basis in the allegations.''

The Justice Department has refused to comment on the matter.

Mugica and other Smartmatic representatives have categorically denied that the company has any connections to Chávez, a harsh critic of the Bush administration.

'CLOSELY MONITOR'

Smartmatic is withdrawing from the investigation by the Treasury department's Committee on Foreign Investments in the United States.

A CFIUS committee spokeswoman confirmed the probe would be closed.

''Though the CFIUS process had not yet concluded, Smartmatic has decided to sell its ownership of Sequoia, as the companies have said,'' spokeswoman Brookly McLaughlin said in a written statement. ``CFIUS has therefore agreed to allow the company to withdraw from the CFIUS process. CFIUS will closely monitor the sale process.''

Smartmatic, which purchased Sequoia in 2005, is majority-controlled by Mugica, a dual Spanish-Venezuelan citizen.

The company drew attention from Chávez critics after The Miami Herald revealed in 2004 that the Venezuelan government owned 28 percent of Bizta, a software development company founded and operated by Mugica and another Venezuelan, Alfredo Anzola. Bizta repurchased those shares after the article was published.

Smartmatic representatives call the arrangement a loan, and say the company had to ''pledge'' the shares to the government as part of the deal but that the loan was later paid off.

In 2004, Smartmatic partnered with Bizta and Venezuelan telecommunications giant CANTV to land a $91 million contract to provide electronic voting machines for Venezuelan elections.

Smartmatic has a convoluted corporate structure, involving dozens of proxy owners, that makes it difficult to independently determine whether there is any Venezuelan government connection.

It has a paper trail leading from Curacao to Amsterdam to Delaware and Boca Raton as well as Oakland, Calif.

REACTION

A U.S. congresswoman, who wrote a letter to CFIUS raising concerns about the Smartmatic-Sequoia deal before CFIUS launched the review, said that doubts still remain despite the company's decision to sell the subsidiary and end the investigation.

''In my opinion, Smartmatic's reported action shows that the company could not or was unwilling to get beyond the doubts surrounding this deal and that the CFIUS review was important,'' said Rep. Carolyn Maloney, D-N.Y.

9/11 EFFECT

Smartmatic representatives say the company fell victim to changing attitudes toward foreign investment in sensitive industries, as evidenced by the flap over the sale of major U.S. port operations to a Dubai company. After that deal ignited a political firestorm, Dubai Ports World agreed to sell the operations to an American company.

''The environment for foreign investors has changed markedly in the post-9/11, post-Dubai Ports world,'' Bialos said. "There is much more focus on foreign investment in critical infrastructure.''